French Tax Authorities Raid Google

By: David J. Herzig

Don’t ever say that The Surly Subgroup is not on some breaking news. It is being reported starting at 5 am French time some 100 French authorities conducted a “ultra secrète” raid on Google’s Paris headquarters. This past February, Google was assessed a deficiency of some 1.6 Billion euros in back taxes.

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Une perquisition a lieu ce mardi au siège de Google à Paris. LP/F. DUGIT

There is nothing really new about the Google tax story. Members of the European Union are in constant complaint about the use of tax strategies used by multinationals. With awesome names such as the Double Irish with a Dutch Sandwich, multinationals that have portable revenue generation items, e.g., algorithms, can house those assets in low tax EU jurisdictions such as Ireland. By then using EU laws to their advantage, e.g., EU tax law protects companies from paying tax in a non-permanent establishment country, they can avoid or mitigate tax.

In January this year, Google settled similar claims with the United Kingdom. Continue reading “French Tax Authorities Raid Google” →

Tax at Midlife

I am at the Association of Mid-Career Tax Professors (AMT) Annual Conference today and tomorrow, along with Surly co-bloggers Jennifer Bird-Pollan, Sam Brunson, and Stephanie Hoffer. The conference is hosted by Dennis Ventry and Darien Shanske at UC Davis. Sam, Stephanie, and I are on the organizing committee, along with Dennis and Brian Galle. The conference itself is, I think, Brian’s brainchild–thanks, Brian!

I’m presenting an early-stage piece called The Distributive Case against Offshore Tax Enforcement, which I hope to workshop more extensively over the fall and spring. Jennifer is presenting Taxes, Democracy, and Investment Treaties; Stephanie, Corporate Acquisitions and Integration; and Sam, Playthings of the Wealthy: RICs, Pease, and the AMT.

A question I keep asking myself is: What’s the mission of the AMT conference? Or more broadly, what should we be focusing on at this stage of our scholarly lives?

Back in the day when dinosaurs roamed the earth and I used to attend the still-extant Junior Tax Workshop, the goals were pretty clear: Continue reading “Tax at Midlife” →

About last night …

“Ask not what your country can do for you, but ask what you can do for your country.” John F. Kennedy

We celebrated Volunteer Income Tax Assistance (VITA) in Las Vegas … and the numbers are impressive. Almost 200 volunteers spent 12,000 hours generating over $25 million in federal refunds that have and will continue to exponentially benefit our local communities and working families, including thousands of children. But for anyone who has served as a VITA volunteer, the personal rewards and deep fulfillment from helping others are priceless. If you are a tax professional looking for something more out of work-life-balance (or are curious about Woody Allen’s antihero advice and afterlife plan) … read more about encore tax opportunities here. Details about VITA programs and generous grant opportunities with fast-approaching deadlines (June 1) follow the fold …

Continue reading “About last night …” →

Trump Tax (Non) Disclosure

By David J. Herzig

Today, Paul Caron in his TaxProf Blog, highlighted an article by John McGinnis (a Constitutional Law Scholar at Northwestern). In the article, McGinnis states that Trump should not have to disclose his income tax returns. His premise is that the norm of tax return disclosure is “bad.” He believes that privacy norms should trump any right of the electorate to see a candidates taxes. I vehemently disagree with this normative position. I hesitate to write a “hot take” or half-baked reaction to the article. But there is dangerous precedent failing to highlight the error(s) in McGinnis’ position. (I am under the assumption that McGinnis had limited space to write his opinion and nuance he would normally make is lost to space constraints).

I, as well as others such as, Joe Thorndike, have previously made the point that tax return disclosure is very important. In my Forbes article, I made the point of a variety of reason tax return disclosure is very important. I said, “First, tax returns can be a window to understanding how someone truly thinks and behaves; what you do when you think the public isn’t looking, shows the more authentic self. (Hillary Clinton’s tax return is arguably less revealing, since she has long known her returns would be made public.) Trump’s tax filings might provide some additional insight into how he would run the country. Does he follow rules? Stake out very aggressive positions? Take unnecessary risks?” I think how people act in private is the best proxy for understanding what they think. With a candidate like Trump, this may be the only window into how a Trump presidency would look like.

McGinnis starts his discussion by making the first point in support of his thesis that Continue reading “Trump Tax (Non) Disclosure” →

Can EU-wide Corporate Consolidation Be Revived?

By: Diane Ring

On Tuesday, Shuyi mentioned the EU’s Common Consolidated Corporate Tax Base proposal (CCCTB) in her post, noting some interesting parallels between maritime/bankruptcy coordination and international tax efforts at coordination. This motivated me to take a look at the recent developments that have happened around the CCCTB proposal. The CCCTB would provide a single set of rules for calculating the income of businesses operating in the EU – and would allow for such businesses to file a single consolidated return for their EU activities. The group’s income would then be allocated across the member states. Under this scheme, individual EU member states would still be able to tax their portion of the group’s income at their own country-specific tax rate. But I was curious–the CCCTB proposal is not new; it has been around for more than a decade. What has been happening on this stalled cooperation front? And, more importantly, will the EU’s announced re-launch of the proposal have a greater chance of success than previous attempts? Continue reading “Can EU-wide Corporate Consolidation Be Revived?” →

Trump Claims $557 Million in Income in 2015

By: David J. Herzig

Yesterday, Donald Trump filed his personal financial disclosure with the Federal Election Commission. This updated his initial financial disclosures. On his web site he claimed the disclosures were “the largest in the history of the FEC.” Unfortunately, he did not file his disclosures on-line like Hillary Clinton. Alas, we will have to wait a little bit to get to the details.

Nonetheless, according to Mr. Trump’s website he made $557 million in income in 2015. That number does not include “dividends, interest, capital gains, rents and royalties.” So, his real income should be substantially higher.

I have been writing about why a disclosure of Mr. Trump’s tax returns are necessary (at Forbes and the Wall Street Journal). Once I have a copy of the disclosures, I will give some updates (hopefully shortly) about various items that raise some red flags. From what I gather in innuendo and rumor about his disclosure, the calls for full disclosure of his tax returns to sort out facts from fiction will continue to gain steam.

The key reason the tax returns are needed is to permit a thoughtful discussion (hopefully more global tax policy discussions) between the relationship between his over $557 million in gross income and his taxable income.

[QUICK UPDATE: I was amazed how ABC, NBC, FOX, CBS, The Wall Street Journal and the New York Times all seemed to know what was in the not yet public disclosure. The rule according to the FEC is that the return is not public until they have approved it. However, despite the non-public disclosure, the FEC has apparently sent the disclosure out to certain news sources. It is amazing how a governmental agency can partake in such mishegoss!]

[UPDATE 7:45 pm] The Wall Street Journal put up Trump’s FEC disclosure. Available at: http://www.wsj.com/public/resources/documents/TrumpdisclosureMay2016.pdf?mod=e2twp

A Tax Professor Feels a Little at Sea

boaty — Credit: https://nameourship.nerc.ac.uk

Last Thursday, Tulane Law School held its annual faculty scholarly retreat, which basically means we cloistered ourselves in a downtown conference room and workshopped eight papers over the course of a day. ’twas a nice end-of-semester opportunity to appreciate and engage with everybody’s work. I got to be discussant on a paper by my colleague, Martin Davies, Cross-Border Insolvency and Admiralty: A Middle Path of Reciprocal Comity, a working version of which was recently published in the Comité Maritime International 2015 Yearbook. Martin is the Director of Tulane’s Maritime Law Center, and he has kindly given me permission to blog the paper here.

Warning: This blog post discusses areas of law that are only marginally related to tax law, which some may find unsettling. On the other hand, the paper implicates some interesting jurisdictional and distributional issues that parallel some of those found in international tax.

Continue reading “A Tax Professor Feels a Little at Sea” →

Money Monster Review over at BLPB

Last Friday, I went and saw Money Monster, the new Jodie Foster-directed movie with Julia Roberts and George Clooney in it. For the three of you thinking about seeing Money Monster instead of, say, Captain America: Civil War, my colleague, Ann Lipton has the securities law-ish review over at Business Law Profs Blog. Bottom line: Entertainment good, securities law not so good. Also, there’s a line about tax in there somewhere.

Tax Professors on @Twitter

A little over a week ago, I came across an article titled Top 50 Law Professors on Twitter. I did not even want to link to the article (although I did) because there was not one tax professor on the list. So on this #followfriday, if that is still a thing, I thought I would created a list of tax professors on @twitter. If I missed you, I am sorry; just send me your twitter handle or follow me and I will add it to the list!

Starting with the SurlySubgroup (@surlysubgroup)

Jennifer Bird-Pollan (@jbirdpollan)

Sam Brunson (@smbrnsn)

Phil Hackney (@EOTaxProf)

David Herzig (@professortax)

Leandra Lederman (@leandra2848)

Ben Leff (@benmosesleff)

Francine Lipman (@Narfnampil)

Diane Ring (@ringdi_dr)

Shu-Yi Oei (@shuyioei)

Stephanie Hoffer (@Profhoffer)

Other United States/Canadian Tax Professor (in no particular order):

Continue reading “Tax Professors on @Twitter” →

Lionel Messi, Tax Fraud and the Panama Papers

I have been fascinated by the accusations of tax fraud levied against soccer superstar Lionel Messi and his father by the Spanish tax authorities. Right when I thought the story could not get more interesting of course Messi is tied to the Panama Papers. As much as I like Hermione (h/t Shu-Yi), I love Messi!

As a quick background for non-sports and football (I mean soccer) fans, Messi is the greatest soccer player in the world and maybe the greatest soccer player of all time. As a point of reference, he would be the equivalent of Michael Jordan, Joe Montana, Babe Ruth rolled into one player. Imagine what would happen if LeBron James were accused right now of tax fraud by the IRS? This would dominate ESPN and probably network television. Well, this is what is happening in the rest of the world with Messi.

Last year, a bombshell was dropped when the Spanish taxing authorities accused Messi of defrauding Spain of more than $5 million. Continue reading “Lionel Messi, Tax Fraud and the Panama Papers” →

Harry Potter/Panama Papers Fan Fiction Alert (Rated: Fiction T)

By: Shu-Yi Oei

Confession: I love Mallory Ortberg, and after today, I might love her even more.

Here’s the latest from Mallory and The Toast: Harry Potter/Panama Papers Fan Fiction! This, after various news sources reported that Emma Watson was named in the Panama Papers data leak as having set up a BVI offshore company.

(Hat tip: Various friends on Facebook)

Perhaps my favorite line: “I used to be a lot of things,’ Hermione said decisively. ‘I have money now instead.’” Boom! Harry Potter meets Ayn Rand.

The fan fiction is very funny, but honestly, I am personally more taken by Ortberg’s beautifully crafted pseudo-legal disclaimer:

“*WITH THE IMPORTANT CAVEAT THAT THE OFFICIAL LINE RIGHT NOW IS THAT HER SHELL CORPORATION WAS CREATED SO SHE COULD PURCHASE PROPERTY PRIVATELY AND WITHOUT FANFARE, WHICH IS CERTAINLY POSSIBLE, I DON’T MEAN TO IMPLY SHE IS 100% A TAX DODGER BUT IT CERTAINLY RAISES SOME QUESTION, OKAY, BACK TO THE FAN FICTION NOW, AGAIN BEARING IN MIND THAT THIS IS JUST FOR THE SHEER DELIGHT OF PICTURING A LIBERTARIAN HERMIONE IN A SMOKY ROOM CREATING SHELL CORPORATIONS AND BUILDING TAX SHELTERS, ALSO HERE IS A QUICK PRIMER ON THE PANAMA PAPERS IF YOU’RE UNFAMILIAR OR READ A PRIMER A FEW WEEKS AGO AND THEN FORGOT”

The tone is so spot on, it made me weep.

In seriousness, though, the fact that the Panama Papers has made The Toast (which can generally be described as a feminist website with lots of literary and pop culture references) tells us something about how public opinions surrounding offshore tax evasion and structuring become disseminated throughout popular consciousness. Sure, organizations like Tax Justice Network and Oxfam write about tax havens and offshore evasion all the time and those venues tend to be more salient to us tax people. But public opinion surrounding convulsive events such as data leaks is also shaped in other popular fora as well—in this case, by Ortberg using the fierce set of tools at her disposal (humor, sarcasm, wit, movie references, an encyclopedic knowledge of random things like the history of the Protestant church, Greek mythology, and 19^th century Gothic romance novels, etc.). Whether and how these informal modes of opinion transmission actually affect legal and political outcomes is a question that needs systematic inquiry.

Is the Global Trend Toward Tax Transparency and Disclosure a Surprise to Many Multinationals?: Insights from the ABA Tax Section Meeting in DC, May 6, 2016

By: Diane Ring

As I mentioned in my post earlier this week, I am in DC for the ABA Tax Section Meeting and am very much looking forward to this afternoon’s session on the EU State Aid Investigations. But at this morning’s session of the Administrative Practice Section, much of the conversation during the panel on the post-BEPS world focused on the array of new mechanisms that have emerged–or are being contemplated–at all levels (domestic tax law, international agreements, etc.) to provide increased transparency regarding multinational taxpayers and their tax treatment. Among the key examples were FATCA, BEPS-based country-by country-reporting, and new rules in the EU.

The fact that this was a topic at the ABA was not surprising, nor was the specific list of transparency and disclosure measures noted during the discussion. What did surprise me was the observation made during the panel that for many multinationals (not the really large ones, but the next tier down) this emerging trend was not on their radar. The point was made that these businesses did not have the staff to monitor the activities of the major international organizations such as the OECD and JITSIC in the same way that the very largest businesses did. Thus, despite the fact that the current world of transparency and disclosure was in fact foreseeable and reflects a perceptible evolution that has been taking place since the 1990s, it nonetheless took some of these taxpayers by surprise.

I am not sure what to make of this–but one point it suggests is that there was a general sense among these multinational businesses that although institutions such as the OECD played a role in international tax, it was a limited and predictable role that did not warrant ongoing and extensive monitoring by such businesses. I imagine institutions such as the OECD are getting more scrutiny from these businesses now.

Tax Policy and Puerto Rico’s Fiscal Crisis: An Insolvency Primer and Some Tax Things to Read

By: Shu-Yi Oei

I’ve been following the story of Puerto Rico’s default on its public corporation debt repayment obligations, which has been unfolding over the last several months. The latest happened on Monday, May 2 (well, technically Sunday), when Puerto Rico missed a major debt payment that was due to the bondholders of its Government Development Bank (GDB).

The topic has been well covered from the sovereign debt/insolvency angle over on Credit Slips, so I won’t go into that in detail here. As I understand it, the main points are these:

(1) Puerto Rico owes around $70 billion total outstanding debt to its creditors, of which a significant chunk is public corporation debt. Public corporations are corporations owned by the government of Puerto Rico. For example, the GDB is a public corporation.

(2) Unlike U.S. municipalities such as Detroit, Puerto Rico entities aren’t considered debtors for purposes of Chapter 9 of the U.S. Bankruptcy Code. They therefore don’t have access to the Chapter 9 municipal bankruptcy process. See 11 U.S.C. § 101(52). This is a bit of a head scratcher.

(3) In 2014, Puerto Rico’s legislature passed a law, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, which created a mechanism analogous to Chapter 9 bankruptcy by which Puerto Rico public corporations can restructure their debt. See Puerto Rico Passes New Municipal Reorganization Act: Puerto Rico Public Corporation Debt Enforcement and Recovery Act, 2014 P.R. Laws Act. No. 71, 128 Harv. L. Rev. 1320 (2015).

(4) Some bondholders filed a lawsuit, contending that Chapter 9 of the U.S. Bankruptcy Code preempts the Recovery Act. The First Circuit ruled that the Recovery Act is preempted. Franklin California Tax-Free Trust v. Puerto Rico, 805 F.3d 322 (1st Cir. 2015). The Supreme Court granted cert and heard oral arguments on March 22, 2016. No decision yet. For one scholar’s take on the issue, see Stephen J. Lubben, Puerto Rico and the Bankruptcy Clause, 88 Am. Bankr. L.J. 553 (2014).

(5) In light of all this, some have called for U.S. Congressional action, and there’s been legislation drafted to address Puerto Rico’s fiscal crisis that will allow for both restructuring and reform going forward. The House Committee on Natural Resources put forth a draft bill, the Puerto Rico Oversight, Management & Economic Stability Act (“PROMESA”). See also here for a helpful executive summary that accompanied an earlier draft. So far, that legislation has stalled, but they’re still trying.

There are many important issues in play, about which various stakeholders and commentators disagree. Some big ones are: (a) whether the draft PROMESA legislation raises retroactivity issues that make it unfair to bondholders (including mutual funds and their investors) who may be subject to restructuring ex post without having had notice of that possibility ex ante; (b) relatedly, whether creating a bankruptcy-like restructuring process for Puerto Rico is bad for bondholders because it prevents holdout creditors from holding up restructuring negotiations, (c) how much oversight and sovereignty Puerto Rico should cede (for example, different stakeholders feel differently about the installation of an oversight board); (d) the extent to which austerity measures are feasible and should be imposed [fn1], and (d) and what substantive reforms should be put enacted going forward.

So where does tax come in?

Continue reading “Tax Policy and Puerto Rico’s Fiscal Crisis: An Insolvency Primer and Some Tax Things to Read” →

Marijuana and Charitable Orgs Response

By: Philip Hackney

On Monday Ben Leff made some good points about illegality and charitable organizations that critiqued my post on a recent IRS denial of an organization that planned to distribute marijuana. I am excited to be able to engage on this issue here on our new effort at consolidated blogging. Ben makes one primary point: “even where conduct is facially “illegal,” there is ambiguity about whether it violates a fundamental public policy, and the IRS should hesitate before making a decision on that score.” He also makes a couple ancillary points on (1) the proper interpretation of the Religious Freedom Restoration Act (“RFRA”), and (2) whether the IRS should have avoided ruling on the issue of marijuana at all in its most recent denial. I will address the primary point first and then turn to the two ancillary points.

I agree that in general the IRS should not make choices about illegality that are not within the IRS’s jurisdiction. For instance, the IRS should not make a judgment that an organization is engaged in illegal behavior, and therefore not charitable, based on its belief that the organization might be in violation of antitrust laws in a criminal way. The IRS simply has no way of generating the proper evidence nor of properly evaluating any evidence it does generate. Until the FTC makes a ruling on the legality of the conduct, the IRS should focus on charitable tax law and whether the acts themselves fall outside of charitable organization behavior in a substantial way. Continue reading “Marijuana and Charitable Orgs Response” →

Stuck in the Middle With . . . the IRS?!?

By Sam Brunson

Pity the IRS.[fn1] It is, right now, stuck in the middle of a battle over religion. See, churches, like other public charities, are exempt from tax under section 501(c)(3). But the exemption comes with certain limitations, including an absolute prohibition on supporting or opposing candidates for office.

This prohibition has become something of a culture wars battleground, at least with respect to churches. Some churches argue that they have a moral and religious obligation to support candidates whose actions are in line with their beliefs, or, alternatively, to oppose candidates whose actions violate their beliefs. As such, they claim this prohibition violates their Free Exercise rights, and is unconstitutional, at least as applied to churches.

The funny thing is that, as best I can tell, only one church has ever lost its tax exemption for violating this campaigning prohibition. Continue reading “Stuck in the Middle With . . . the IRS?!?” →